Product and Process Innovation: Persistence and Complementarities

Abstract

Using a Spanish database, we have explored the role of persistence in the decision of firms to implement product and process innovations and to develop those innovations. We assume that a company that is continuously engaged in some type of innovation activity will be encouraged to innovate, either for investment reasons or to enhance its market image. Because of the effects of persistence (state dependence) could be contaminated by unobserved heterogeneity, we use panel data, and make an effort to separate these effects. We demonstrate that persistence is important in both innovation decisions. Persistence in innovation increases at least 15% the probability to develop more innovations. A second important result is that the introduction of the alternative innovation increases the probability to innovate in a range from 2 to 4%; it implies that complementarities between innovations are also important in the decision to continue innovating in terms of absorbed synergies and capacities generated by the firm.